Now more than ever, getting a loan for a mortgage, car or to start a business hinges on your credit score. But the score is only as good as the raw data that go into generating it.
For people who have been held back by incorrect credit scores, there's a little-known way to repair your credit and improve your score in the process, called rapid rescoring.
The process helped Warren Crest purchase his family's first home in Baltimore. When Crest first applied for a mortgage, the lender told him his credit score wasn't high enough to qualify.
"I was thinking, man, this thing just might not go through," Crest, 45, said. "All this time, all this effort, all this money that's already been put out and it may not happen."
Then Rick Lynard, a mortgage broker at Equitable Trust Mortgage, suggested that Crest might be a good candidate for an obscure process called credit rescoring.
"Years ago it meant you'd get a better interest rate perhaps," Lynard said. "Now, not having that credit score and the need for credit rescoring very simply means getting the house or not getting the house."
How Credit Rescoring Works
Your credit score predicts how likely you are to pay off future debts based on how well you've paid off past debts. The problem is that 90 percent of credit reports contain incorrect information, and if your credit report is wrong, then your credit score is probably wrong, too.
Credit rescoring is only available through lenders when you take out a mortgage or refinance. If your mortgage broker or lender doesn't suggest it, be sure to ask if you're a good candidate.
You'll have to provide proof that there are mistakes on your credit report. Then the rescoring experts make your case to the big three credit bureaus via dedicated phone and fax lines. If you're a good candidate, they guarantee results in three days or less. The average cost of the service is $100, which mortgage lenders cover.
"If a consumer were to petition a credit bureau on their own, it would take them 30 to 45 days to complete," said Paul Wohkittel, a rescoring expert with New Jersey-based CIS/Lenders Credit Services. "Thirty to 45 days in the mortgage industry might as well be 30 to 45 years."
Rescoring experts say common credit report errors are medical bills that your insurance company didn't pay on time, bankruptcies and tax liens reported that never happened and accounts missing from your report that would be favorable to you.
In Crest's case, someone else's unpaid account on his credit report was dragging his score down. Removing the other person's account from his credit report raised his score from an unflattering 538 to a healthy 666 -- a 128-point gain. The credit scoring scale ranges from 300 to 850.
"I'm a living example that it can work," Crest said. "So, I'm grateful for it. I really am."
Credit rescoring experts can also make other recommendations to help you raise your score. For example, if you have credit card debt and have even a little cash on hand, strategically paying down cards where your balance is near the credit limit will help you because being near the limit drags your score down.
Alternatively, if you pay your credit cards in full each month and have no outstanding balances, it may help your score if you formally close revolving credit accounts that you no longer use.
A few things to keep in mind:
Be sure you don't confuse credit rescoring with a scam called credit repair. Credit repair companies claim they can help you remove unflattering entries from your credit report even if they are true. That's illegal and you will lose more money.
One way to tell the difference is that rescoring is only available through mortgage lenders. Rescoring professionals don't advertise or approach you directly. Click here for more information on Credit Repair Scams.
You can also correct mistakes on your own credit report. Just order your free reports from annualcreditreport.com and follow the simple directions for disputing errors. It takes about a month, so if you're planning to apply for a big loan, get started well in advance.